It says that in 2014/15 financial year 800 firms made use of the system but 95% of the tax relief claimed went to 305 of the biggest UK companies.

"The evidence suggests that neither of these indirect support mechanisms through the tax system are effective at expanding and diversifying the UK's base of innovating businesses," the IPPR said in a discussion paper.

"Both policies predominantly channel funds to large, established companies: deepening their existing advantage in the UK, rather than expanding advantage to new firms."

The IPPR says that abolishing R&D tax credits and the patent box scheme would save around £3.6bn annually, which could be spent on projects that would spur innovation more effectively.

It says a new National Investment Bank should be created to invest in infrastructure, housing, business growth and innovation.

It would like more money to be directed to Innovate UK, the government's existing agency tasked with boosting productivity and innovation.

'Innovation tax'

The CBI, which represents some of the UK's biggest businesses, agreed that Innovate UK should get more support, but not at the expense of other programmes.

"Getting rid of R&D tax credits and the Patent Box during a time of uncertainty, would in effect only serve as a tax on the UK's most innovative firms.

"While more can be done to get SMEs [small and medium sized enterprises] involved, more smaller businesses are using the tax credit each year," said Tom Thackray, CBI innovation director.